Despite lack of mandatory review, House budget bill lards on new special interest tax breaks
Posted May 05, 2021 in Press Releases
The budget approved by the Ohio House of Representatives contains new tax deductions likely costing tens of millions of dollars, as well as restoration of a special-interest sales-tax exemption for investment coins and metal bullion that has been repealed twice earlier by the General Assembly.
In testimony today, Policy Matters Ohio Research Director Zach Schiller told members of the Senate Local Government and Elections Committee that the special interest tax breaks will drain funds from Ohio’s communities that would be better spent caring for elderly people, supporting public education or making up for federal cuts to services for domestic violence survivors. Schiller told the committee to strip those measures from House Bill 110. He noted that the creation of these giveaways “is singularly misplaced in that the General Assembly has not followed Ohio law and reviewed existing tax breaks to see if they should be modified or repealed.”
Schiller also said lawmakers shouldn’t initiate new tax breaks until they fulfill their mandate to scrutinize tax exemptions. In 2016, both houses of the legislature unanimously approved the creation of the Tax Expenditure Review Committee (TERC) to examine all of the state’s tax exemptions, credits and deductions over an eight-year period. After an initial review in 2017-18, the TERC approved the continuation of $5 billion a year in sales tax exemptions, though no proponent testified to support eight of the 15 it examined. Since then, contrary to Ohio law, the TERC has not met. “Before the General Assembly creates new tax breaks it ought to get a handle on how well the $9 billion in annual tax breaks we have now are performing,” Schiller told the committee.
Schiller called the revived sales-tax break for investment metals and coins “a textbook example of the kind of special interest giveaway that should not be considered.” As former Governor Kasich said in vetoing a move to restore this exemption, “There is no reason to provide preferential treatment to one class of items and not others that could possibly increase in value, such as art, sports cards, or antiques.”
One new provision would allow business owners to deduct capital gains from selling interests in their businesses. “Why is it in the interest of the state of Ohio to incentivize Ohio business owners to sell their businesses?” Schiller asked. Under the measure, any owner of an existing business who has materially participated in it for five years can sell it and benefit from the deduction.
Another new tax break would certify certain “venture capital operating companies” and back them with a state tax deduction. Yet Ohio already has a state venture capital program – one that lawmakers are shelling out $14 million a year to back because the investments it supported did not yield the required return to pay off debt issued under the program.
While the Legislative Budget Office said it couldn’t quantify the cost of these two deductions, it said in each case they could amount to tens of millions of dollars beginning in Fiscal Year 2027.
“Instead of creating yet another business tax break,” Schiller said, “Ohio should put more resources into educating our young people.”